Ever had a nagging question on your mind but felt too silly to ask it? Well, you’re not alone!
For instance, when it comes to understanding how to buy and sell stocks, invest in real estate, or even purchase an ETF or mutual fund, it feels rather embarrassing to ask so-called ‘stupid’ questions. But why is that? Well, people are generally hardwired to be independent-minded and feel ashamed to ask questions in fear of looking incompetent, needy or just plain ‘stupid’!
But, as the saying goes, there is definitely NO such thing as a stupid question! And that’s especially true when it comes to investing, as asking that one burning question might just be your smartest move yet. Essentially, building wealth is just a matter of overcoming that almost unspeakable fear of asking questions.
So, here are some common investing questions that you might be too afraid to ask (but shouldn’t be) to boost your investing smarts.
1. What’s the best investment option?
No one said deciding where to put your hard-earned money was easy! With a dizzying number of decisions to make, you could start with determining what you want to achieve with your investing. From there, you can work out if your goals are short-term or long-term, meaning are you saving for retirement? Or a dream trip that you’d like to take in a few years?
There’s no wrong answer here, and above all, every type of investment has its pros and cons. But the best investment option for you depends on your goal, time horizon, risk tolerance, and understanding of the market, so don’t invest in an asset you don’t completely understand.
In terms of the time horizon, the longer you have before withdrawing the money, the more stocks can be included in your portfolio. But, as you get closer to needing the money, you may want to lean towards more conservative assets, like bonds, to reduce volatility in your portfolio. If you are more of a risk-averse person, you can look beyond stocks and bonds and invest in real estate directly or through real estate investment platforms (REIPs), or even in real estate investment trusts, known as REITs.
You may also choose to invest in exchange-traded funds, ETFs, some of which can track commodity markets, like oil or gold. Also, mutual funds allow you to incorporate a variety of assets into your portfolio, because they can hold stocks, bonds, real estate, and commodities.
In Dubai, you can invest in stock markets (DFM and NASDAQ Dubai), mutual funds and bonds (mostly in the form of the sharia-compliant sukuk), and real estate. Given investors rarely venture past stocks and bonds, and granted, they are indeed great candidates for building wealth, real estate, in particular, is actually a favorable option for beginners. Further, investing in Dubai real estate is simple enough to understand, accessible as ever, a tangible asset, and property prices are lower than those in other major global cities like New York or London. Plus, real estate investments are a great hedge against inflation!
2. What is diversification and why is it important?
In brief, diversification means not putting all your eggs in one basket! In other words, it’s all about spreading your risk among many different types of investments that won’t all falter with market downturns. For example, an investor who puts his money into one sector may find it hard to recover if that same sector crashes. On the other hand, seasoned investors know that when volatility strikes, a well-diversified portfolio will indeed weather a market storm, as they’re less exposed to potential losses in the event of a market crash.
Now, the performance of different asset classes will naturally vary over time, given that each asset is affected differently by wider market conditions, or world events, like the Covid-19 pandemic or the Russia-Ukraine war. But, by distributing your assets, otherwise known as asset allocation, across a range of investments, and even geographies, you can help limit your exposure to risk.
Every investor has unique financial goals and thus requires a different investment diversification strategy. But bearing in mind these financial goals and risk appetite, it’s more prudent to mix shares, bonds, cash and other asset types, like different real estate properties, to spread your risk. However, be sure to find the right balance, as a lack of diversification exposes you to too much risk and over-diversification makes it increasingly difficult to monitor investments.
3. What is risk?
Speaking of risk, we all know what risk is on a basic level – and how to generally avoid it. But when it comes to investing, risk is inevitable. Especially in market times as uncertain as now. Keep in mind that when you invest, you’re always taking on some sort of risk, but the amount varies between each type of investment. So, be comfortable with the value of your investments going down as well as up, relative to the level of risk you’ve chosen to take.
Sometimes more risk means the potential for more gain, as we’ve notably seen with crypto—but that’s not always the case. As an investor, it’s crucial to understand when to take on a risk that suits your portfolio. And that’s all down to your risk tolerance, which is how much risk you are willing to take.
So, do you have a more aggressive or conservative approach? Meaning, do you prefer investing in high-risk assets that offer greater potential returns, or would you rather play it safe? Well, time horizon is key here, as the closer you are to needing the money, the more likely you should consider shifting to more low-risk investments.
So, if your risk tolerance is pretty low, avoid investing in assets that carry a high probability of incurring losses, like the more turbulent cryptocurrency market. Now, that’s not to say you can’t include such high-risk assets in your portfolio, as they have high-reward potential. But be wary of the volatile investment types, and what matches your financial goals.
Nevertheless, if you get too worried about high-risk investments, then try to avoid stocks and cryptocurrencies, and opt for a more low-risk option, like real estate investing platforms.
4. How much money should I invest?
Again, this depends entirely on what your investment goals are, as well as what your current financial situation is. In fact, there isn’t really any amount too small, with some online platforms allowing you to invest anything from $1. But to earn bigger returns, a sizable amount is preferable, of course!
A rule of thumb is to ensure you’ve got disposable income to begin with, as you should invest money that you can afford to lose. On the other hand, keeping a contingency fund of at least three months’ worth of expenses before investing is good to have as security.
If you don’t have a huge chunk of money, you can drip feed small amounts on a regular basis. Even if you have to start small, it’s best to get started anyway. The sooner you do, the quicker you will be able to reach your financial goals. Additionally, REIPs like SmartCrowd allow you to invest in Dubai properties for as low as AED 500.
5. How long should I invest for?
Put simply, time in the market is more important than timing the market! Broadly speaking, investing your money should be a medium to long-term commitment. So it’s best to invest for at least 5 years without dipping into or withdrawing your earnings.
If you can’t guarantee that you won’t need the money before that period, then investing it might not be for you in this moment of time. If you’re looking at a shorter timeframe than that, and you may be better off putting your money into savings, where they will be easily accessible and won’t be subject to short-term market fluctuations.
That being said, the longer you can invest, the more potential for your money to grow, as you can benefit from the power of compounding and be able to ride out any market fluctuations that might occur. So, what’s an investor to do? Once you get in, stay in!
Bottom Line…
The smartest thing you can do as a beginner is to just ask these ‘silly’ questions! If anything, they’re far from silly and can cost you money if left unanswered. Take this opportunity to embrace the fact that you won’t know everything and to, more importantly, keep learning! Go ahead, speak to an investment advisor, watch YouTube videos, listen to podcasts, and read our blogs.
We’re all trying to navigate our way through an often uncertain and busy space. And that’s why we’re here. Our aim is not only to make real estate investments accessible and affordable to everyone, but to also inform and educate our readers on how to build their wealth – the smart way!
Disclaimer: This blog is intended solely for educational purposes and shouldn’t be treated as financial advice. We suggest you always conduct thorough research, perform your own due diligence and consult with financial advisors to assess any real estate property against your own financial goals.
